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Why online retailers are leaving Amazon

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Earlier this year three of the worlds largest retailers, Macy’s, Buy.com and Gap, have pulled their products from Amazon along with many other smaller retailers.

Sales being eroded by Amazon

Whilst Amazon is rated as the internet's largest retailer according to http://www.internetretailer.com/, concerns have been growing for third parties over Amazon's use of their sales data. It has been suggested that Amazon are using other companies sales information to select their top products, before sourcing them directly and undercutting them by selling the same items alongside their clients. Amazon's listing policy of course gives higest priority to 'sold by Amazon' products and so the buy button will always give Amazon the sale.

While Amazon won't comment on the use of such tactics, with such large retailers pulling out despite the huge sales potential of Amazon, it seems such worries must be justified to some extent.

Reducing Service Levels

Other concerns over Amazon's seller service levels have also been mounting. Previously larger sellers were allocated a personal account manager who could be phoned to sort out problems. Now everyone must use the email help desk, or call centre, which while reducing Amazon's costs, places obstacles in the way for sellers.

Problems also arise because many people can sell the same product but only the original lister and Amazon can edit the listing. Many items quickly listed by pile it high, sell it low stores are poor quality, often with the wrong description or image; however other high quality traders have no way of editing the listings without getting the original manufacturer to raise a ticket to Amazon's automated email support - which can be slow if not impossible to achieve.

Branding

Many third party Amazon retailers have also been concerned that Amazon are using product sales information to help market both Amazon and competing marketplace sellers. Coupled with the fact that after every order, customers are likely to receive 2-3 emails on average promoting accessories/complimentary goods from competitors, many feel that they are in fact losing potential customers to Amazon rather than retaining them.

Fulfilment By Amazon

Amazon's fulfilment service is certainly cheap and for many is an enticing way in to outsourcing fulfilment, however the reality is somewhat less successful than advertised.

There are several downsides to the service that aren't usually discovered until it's too late - the onerous and strict goods in procedures mean that for 99% of retailers, goods will need to be sent to them first by the manufacturer to be specially labelled and booked in online, before being sent on to Amazon; all adding additional handling and carriage costs. Complaints have also been raised over the Seller Central management system which, despite Amazon's reputation with technology, is extremely limited and lacking in any reporting or even basic management tools.

Add to this that all items dispatched by FBA, even those sold on eBay or via other websites, are sent in Amazon branded packaging and could include others advertising leaflets and it's clear to see why companies are beginning to look elsewhere for both sales and order fulfilment. Indeed, Amazon sellers are increasingly looking for external fulfilment houses for their Amazon stores.

What's Amazon's Plan?

It seems that everything that is too good to be true probably is.

- Why did Amazon create a marketplace?
It certainly wasn't because they wanted to help smaller businesses, but most probably because they wanted to increase the number of lines available on their website with almost no capital investment by letting third-party sellers own the stock and take the risk. As soon as they know what sells though, you can be pretty sure Amazon will be selling it directly too.

- Why is Fulfilment by Amazon (FBA) so cheap for Amazon sales?
We think that it's probably below cost for many of the items they send so the cost is justified elsewhere. FBA is cheap enough that it's an easy switch for most retailers and Amazon make enough margin on the sale to pay for it. What Amazon get though is allegiance: both of the retailer, who will find selling elsewhere so much more hassle unless they have second outsourced fulfilment provider; and the customer, who will know to come back to Amazon to buy products and not visit the online store of the retailer as Amazon have complete control over the packaging and customer service.

May 9th, 2011 by Hannah Newman

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